Battery Maker's IPO Finally Gets the Green Light

After several months of waiting, Kenya's Capital Markets Authority (CMA) has finally approved the initial public offering (IPO) by Eveready East Africa Ltd.

The offer opens on November 13 and closes on November 24. Trading in shares is expected to start on December 18.

According to managing director Steve Smith, the IPO is structured as an offer for sale by the existing shareholders who will be selling 63 million shares, which is 30 per cent of their shares in the company.

Eveready joins the stable of companies belonging to Naushad Merali's Sameer Group already trading at the NSE. Others are tyre-maker Sameer Africa and coffee and tea plantation firm Sasini.

Eveready, a battery manufacturer, is the last in a batch that had applied to join the Nairobi Stock Exchange (NSE) at the beginning of this year.

Others, including KenGen, the Scangroup and Equity Bank, are already trading at the bourse.

The reason for the delay, according to Mr Smith, is that CMA had wanted his company to explain its contract obligations to its US-based sister company, Eveready Battery Company (USA), before being admitted to the bourse.

In particular, the regulator wanted Eveready East Africa to explain an operational technical services agreement it has with the US firm.

In addition, some items in the prospectus submitted to the Authority needed clarification along with an update of the company's six-month financial report.

Mr Smith said the shares will be offered at Ksh9.50 (0.13 US cents) each, which he considered attractive based on the company's financial track record and prevailing valuations on the NSE.

He explained that the offer has been structured to achieve a balance between retail and corporate investors.

Of the total shares on offer, 40.95 million shares (65 per cent) have been reserved for retail investors, 18.9 million shares (30 per cent) for corporate investors, and 3.15 million shares (5 per cent) for employees and distributors.

Retail investors will be required to apply for a minimum of 1,000 shares, corporate investors 10,000 shares, employees 1,000 shares, and distributors 10,000 shares.

Eveready is being advised on the IPO by CBA Capital as the lead transaction advisor, while Dyer & Blair Investment Bank, CFC Financial Services Ltd, and Standard Investment Bank are the joint lead sponsoring brokers.

Other advisers include Hamilton Harrison and Mathews as legal advisors, Deloitte & Touche as the reporting accountants and Commercial Bank of Africa (CBA) as the receiving bank. Ogilvy East Africa is the communications consultant while Image Registrars is the receiving agent and share registrar.

Meanwhile, Mr Smith added that by being publicly quoted, Eveready will have increased financial flexibility and will allow for price recovery with regard to the company's value.

In addition, the IPO offers Kenyans an opportunity to own part of one of Kenya's oldest and most trusted companies with a consistent track record of profitability.

He added that the IPO comes right after the end of the 2006 financial year, which closed on September 30, and therefore successful applicants to the share offer will participate in the dividend payout for 2006, which is likely to be paid out in early 2007.

He explained that Eveready has good growth prospects in the region, hinged on the continuing recovery of the Kenyan economy and enhanced economic integration, which would open up more business opportunities.

"Eveready is well positioned to achieve growth through regional expansion and margin enhancement through higher production efficiencies arising from an ongoing factory improvement project" he added.

The 40-year old company has four shareholders, with Sameer Group holding the majority at 51 per cent. Others are ICDC with 25 per cent, and ICDC Investment with 10 per cent. The St Louis, US-based group Eveready Inc, owned by Energiser Holdings, owns 14 per cent.

The company makes "D" size car- bon zinc batteries, but imports the "AA" flash-light batteries and the Schick Quattro razors. Schick, which the firm has been rolling out since early last year, was brought on board after Energizer acquired it from Pfizer.

It manufactures its products at a 200 million capacity dry cell plant in Nakuru.

While Eveready has a clear edge over the competition in terms of market penetration and brand recognition, the company has been involved in major campaigns to lock out counterfeits in the region, suspected to originate from Asia, especially China.

Between 1997 and 2005, the firm's sales had declined by Ksh365 million ($5.1million) on size "D" and by Ksh225 million ($3.12 million) on "AA" and Ksh250 million ($3.5 million) on alkaline batteries.

Lately, however, the poor quality goods problem has eased with the government's tough stand on counterfeits. In 2003, the government banned 20 brands of batteries from the local market.